When the deal is completed, Delphi will no longer be a unionized.
Delphi Corporation is now officially scheduled to emerge from bankruptcy by the end of next month, but the company’s future remains uncertain, after a staggering $600 million loss in the second quarter. Delphi said the loss followed large sales volume declines due to substantial reductions in vehicle production, as the Great Recession hit its original equipment customers particularly hard.
Delphi’s new owners have only put up $750 million to ease the company out of bankruptcy, and it is likely the highly-leveraged financiers behind the Delphi deal will have the patience to wait it in hope for larger gains when the economy and production start growing again. A question remains as to whether there is enough capital to carry the company going forward.
GM is taking over four Delphi plants, in Saginaw, Michigan, Kokomo, Indiana, and Lockport and Rochester, New York where workers are still represented by the United Auto Workers. When the deal is complete, Delphi will no longer be a unionized company.
The remaining businesses will go to the lenders group, which has agreed to put up the $750 million in new financing on which the company will depend. “Non core assets” will be sold as soon as practical in today’s market where asset prices are depressed.
The Delphi assets owned by the lenders will continue to be called Delphi, and Rodney O’Neal will stay on as chief executive. GM is making a number of contributions to the deal, including payments to Delphi’s bankruptcy lenders and waiving claims against Delphi.
The federal government’s pension regulator has absorbed Delphi’s defined benefit pension plans, which cover about 70,000 workers and retirees. The Pension Benefit Guaranty Corporation expects to be responsible for about $6.2 billion of the $7 billion in shortfalls in Delphi’s largest plans.
The latest financial results show the severity of the challenges facing Delphi. Sales to GM North America decreased 53% to $664 million, during the second quarter, while sales to non-GM companies declined by 40%, to $2.1 billion, during the same period. GM is expected to raise production in the third quarter, but not by much.
Delphi said despite meeting many of its transformational objectives, the company is facing issues such as reduced car production, volatile commodity prices and a need to fund labor legacy costs in the United States. The poor economic conditions and tight credit markets also hurt.
Following a two day auction process conducted in New York City at the end of July, Delphi’s Board of Directors, following consultation with Delphi’s official committee of unsecured creditors and its largest U.S. based union, designated a pure credit bid received from JPMorgan Chase Bank, N.A., as the “Successful Bid”.
The Pure Credit Bid transaction, which is also supported by General Motors Company, is based on a transaction structure that is similar to the transaction announced on June 1, 2009 with Parnassus Holdings, LLC, an affiliate of Platinum Equity Capital Partners, L.P., and GM Components Holdings, LLC, a GM affiliate, and is now being implemented through a modified reorganization plan or through a section 363 asset sale.
Delphi’s Chapter 11 cases were filed on Oct. 8, 2005, in the United States Bankruptcy Court for the Southern District of New York and were assigned to the Honorable Robert D. Drain. The judge approved a modified plan on July 30th 2009.
“We deeply appreciate the support of Delphi by all of our customers, employees, suppliers and other stakeholders during one of the most challenging periods in automotive history,” said Rodney O’Neal, Delphi’s CEO and president.